Digital Assets Are About to Shake up Banking for Good

May 27, 2021

How consumers are moving towards digital asset-based financial services for convenience, flexibility, and competitive rates… and how banks can offer these services.

Banking is due a major transition and it may well be coming in the early 2020s with the adoption of digital assets. Thanks to interest from customers and developments in the technology, retail banks are expressing increased interest in this new financial vehicle and the DLT (distributed ledger technology) that underlies it. Indeed, investors, fintechs, and venture capitalists are making a sustained commitment to digital assets, which they regard as the future of money. Banks can no longer afford to ignore this opportunity to deliver more convenient banking services to their customers at highly competitive rates.

Legitimization of digital assets

It’s wise to be cautious of digital assets from the outset. Some financial service providers remain skeptical of its value as an asset class, with individual assets losing significant market capitalization at times (including this year). Nevertheless, the rise in value, increased interest among consumers, and Coinbase’s recent IPO have helped legitimize the emergent asset class in the mind of many skeptics. This is because digital assets hold great promise to outperform traditional banking with greater efficiency, less bureaucracy, and more transparency.

Consumer demand grows for digital asset banking

It seems that consumers are waking up to the opportunities of using digital assets for their daily banking as well. The recent Cornerstone Advisors survey highlighted that consumers want more digital asset banking options. The survey found that:

  • 15% of consumers own a digital asset.
  • 60% of digital asset owners would use their bank to invest in digital assets.
  • 68% of digital asset owners are very interested in digital asset debit or credit card rewards.

Indeed, virtually every demographic expressed an interest in using digital assets for banking and investing, according to the report.

Opportunities for banks to enhance customer experience

Banks have a unique opportunity to offer digital asset-based services to their customers. They include processing payments, international transactions, exchanging fiat money for digital assets, and even digital asset loans.

For banks considering entering the digital asset space, they have many possibilities and business use cases to choose from: 

  • Financial providers can help customers invest directly in digital assets.
  • They can offer digital asset currency-trading services with competitive fees.
  • They can also offer digital asset-enabled payments and transactions.

As for back-office operations, financial providers can use DLTs to enhance operational efficiencies, such as payments infrastructure, currency transfers, and international transactions. Blockchain technology can be used to set up smart contracts with automated time stamps, updates, and verifications as well, adding transparency and trustworthiness.

The banks already offering digital asset-enabled services

One way to adopt digital assets and offer their services to consumers is to integrate them with established payment systems and other offerings. UK-based fintech Revolut does this for money transfers. When customers make money a transfer they have the option to send it in pounds, dollars, euros, or one of five digital assets. 

Over in the US, VAST Bank now offers purchase and custody services for digital assets directly from customer accounts. Quontic Bank recently launched a digital assets rewards program paying customers 1.5 per cent on debit card purchases. The challenger bank First Boulevard is piloting Visa’s digital asset APIs to enable customers to purchase, store, and trade digital assets.

Banks take cue from consumers

It’s time major banks take a cue from their customers and offer digital asset-based services. Indeed, Patrick Sells, Head of Bank Solutions at NYDIG, emphasizes that digital assets aren’t just for trading: “Banks have a range of product options including trading, rewards, and interest enhancement (i.e. providing interest to account holders in digital assets).”

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